Can Geothermal Power Compete with Coal on Price?

Although the environmental benefits of burning less fossil fuel by using renewable sources of energy—such as geothermal, hydropower, solar and wind—are clear, there's been a serious roadblock in their adoption: cost per kilowatt-hour.

That barrier may be opening, however—at least for one of these sources. Two recent reports, among others, suggest that geothermal may actually be cheaper than every other source, including coal. Geothermal power plants work by pumping hot water from deep beneath Earth's surface, which can either be used to turn steam turbines directly or to heat a second, more volatile liquid such as isobutane (which then turns a steam turbine).

Combine a new U.S. president pushing a stimulus package that includes $28 billion in direct subsidies for renewable energy with another $13 billion for research and development, and the picture for renewable energy—geothermal power among the options—is brightening. The newest report, from international investment bank Credit Suisse, says geothermal power costs 3.6 cents per kilowatt-hour, versus 5.5 cents per kilowatt-hour for coal.

That does not mean companies are rushing to build geothermal plants: There are a number of assumptions in the geothermal figure. First, there are the tax incentives, which save about 1.9 cents per kilowatt-hour. Those won't necessarily last forever, however—although the stimulus bill extended them through 2013.

Second, the Credit Suisse analysis relied on what is called the "levelized [sic] cost of energy," or the total cost to produce a given unit of energy. Embedded within this figure is an assumption that the money to build a new geothermal plant is available at reasonable interest rates—on the order of 8 percent.

In today's economic climate, that just isn't the case. "In general, there is financing out there for geothermal, but it's difficult to get and it's expensive," Geothermal Energy Association director Karl Gawell told ScientificAmerican.comrecently. "You have to have a really premium project to get even credit card interest rates."

That means very high up-front costs. As a result, companies are more likely to spend money on things with lower front-end costs, like natural gas–powered plants, which are cheap to build but relatively expensive to operate because of the cost of the fuel needed to run them.

"Natural gas is popular for this reason," says Kevin Kitz, an engineer at Boise, Idaho–based U.S. Geothermal, Inc, which owns and operates three geothermal sites. "It has a low capital cost, and even if you project cost of natural gas to be high in future, if you use a high [interest rate in your model] that doesn't matter very much."

Natural gas, which came in at 5.2 cents per kilowatt-hour in the analysis, is also popular because it can be deployed anywhere, whereas only 13 U.S. states have identified geothermal resources. Although this limits the scalability of geothermal power, a 2008 survey by the U.S. Geological Survey estimates that the U.S. possesses 40,000 megawatts of geothermal energy that could be exploited using today's technology. (For comparison, the average coal-fired power plant in the U.S. has a capacity of more than 500 MW.)

There's another significant issue: finding geothermal resources. In that way, the geothermal industry has the same challenges as the oil and gas industry. The Credit Suisse analysis doesn't factor in exploration costs, which can run hundreds of thousands of dollars for per well.

"The United States Geological Survey estimates that 70 to 80 percent of U.S. geothermal resources are hidden," Gawell says. "You can't see it on the surface, and we don't have the technology to find it without blind drilling. ... Geothermal hasn't had the breakthroughs in geophysical science that the oil industry had in 1920s. We are still looking for where it's leaking out of the ground."

Despite these caveats, the new analysis is backed up by earlier ones, such as a 2006 Western Governor's Association (WGA) report on geothermal resources in the U.S. Southwest. Using nearly the same economic model, but assuming a higher cost of capital than the one used in the Credit Suisse analysis—in other words, the interest rate that is so troublesome in today's economy—the WGA found that geothermal could be produced from existing resources, using existing technology, for around 6.5 cents per kilowatt-hour, once a 1.9 cent per kilowatt-hour tax credit furnished by the federal government is included.

Although the WGA did not compare the cost of geothermal with coal directly, applying their assumptions to other forms of energy would boost prices across the board, especially for coal-fired plants, which are assumed to last for upward of 50 years. (The assumed 50-year life of a coal-fired power plant allows planners to spread the cost of their construction across an even longer period of time than geothermal plants, which are assumed to last less than half that long.)

Another potential stumbling block is reliability. Both the Credit Suisse and WGA studies assume that geothermal power plants are producing electricity virtually 24 hours a day, seven days a week. Larry Makovich, vice president and senior power advisor at Cambridge Energy Research Associates, believes this is an exaggeration. "They're assuming that if you put a megawatt of geothermal capacity in you're going to run over 95 percent of the hours in the year," Makovich says. "Here's the catch: if you look at actual electric production of geothermal in the U.S., it runs 62 percent of the time."

Other sources dispute this number—Glitnir bank, a financier of geothermal in Iceland and elsewhere, claims that geothermal plants are operational up to 95 percent of the time, and a 2005 paper (pdf) by academics in the field claims that in aggregate, geothermal plants in the U.S. produce power about 80 percent of the time.

What prevents geothermal plants from running continuously is the sometimes harsh nature of the steam on which they depend. "When you take steam out of the Earth it is different from taking steam out of a boiler from a coal or natural gas plant," Makovich says. "It's got a lot of other stuff in it." That "stuff" can include everything from silica and heavy metals to ammonia, depending on the source.

Geothermal advocates hope that many of these caveats become moot. A tax on the carbon emitted by power plants that rely on fossil fuel, for example, could increase the cost of coal so much that geothermal's issues become unimportant. A carbon cap-and-trade system similar to the one used in Europe would do the same.

And state mandates that a certain percentage of energy come from green and renewable sources already seem to be having an effect. "It's been great to see a change in the market—the enthusiasm," says Kitz, who has been an engineer on geothermal projects since he graduated from college in 1985. "Five years ago I said everyone wants green power as long as it's not one one-thousandth of a cent more expensive than coal. Now people just want renewable power, period—It's nice to be loved."